Chain Takes Strides to Stop Its Winter Skid

When Norbert Olberz bought a tiny ski and tennis shop called Sport Chalet on Foothill Boulevard here in 1958, he worried that the warm California winters could prove to be a hardship.

But the German immigrant’s retail acumen carried him through the dry spells, and he aggressively expanded his business in step with Americans’ growing enthusiasm for outdoor sports.

That single storefront location, which now houses Sport Chalet’s accounting staff, has expanded to 22 stores. But with a heavy reliance on winter sporting goods--18% to 30% of sales--the late arrival of winter in Southern California this season has bedeviled Sport Chalet’s bottom line.

“They’re suffering this current quarter because they go so deep in ski assortment and winter-related merchandise,” says Joan Bogucki, vice president of research for Wedbush Morgan Securities Inc. “Without having the snow, it’s been impossible to meet sales and margin goals.”

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For the third quarter ended Dec. 31, Sport Chalet reported net income of $2.05 million, compared with $2.59 million for the same quarter in 1998. Sales increased from $47.2 million to $50.5 million, but Sport Chalet also opened three stores in that period.

The stock has been trading in the $5 range lately, having dropped about 19% over the last year. It closed Monday at $4.88.

“The industry is in upheaval, so many sporting goods retailer stocks are depressed,” concedes Craig L. Levra, Sport Chalet’s president and chief executive. “I think the tendency is that we all get painted with the same brush, but overall, our performance is strong. In market capitalization, our company is worth more on a per-store basis than any other sports chain in the area.”

Bogucki agrees, saying Sport Chalet is “the only sports retailer with positive store sales in the industry.” She is predicting that stock earnings will rebound by March of 2001, by $1.03 per share.

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In addition to opening three stores, the chain began selling a limited supply of items online last year, and, according to Levra, is in the process of further enhancing the site’s usability, speed and selection.

“We launched the site at the end of November, and like any business that’s 3 months old, we’re learning a lot very quickly,” Levra says. “We’re adding new vendors and products to the site on a daily basis.”

Two years ago, Olberz hired Levra from Sports Authority, a Florida-based chain where he was vice president of store operations. His mandate includes stabilizing a shaky infrastructure and building up Sport Chalet’s non-winter-related businesses.

“They had been without a full-time CEO for the day-to-day operations,” Bogucki says. “Craig [Levra] was able to bring a lot of the management infrastructure to the table. He’s also increased the buying staff--I think they’re buying better and the merchandise presentation is better.”

The store’s corporate offices are spartan--located in the back of a converted supermarket, one of the original Sport Chalet stores in La Canada. The company has a ski shop and rental facility in a converted gas station across the street, and accounting offices in storefronts along the same block.

Olberz began his sports retailing business when he bought a two-room sports shop on Foothill Boulevard in La Canada Flintridge for $4,000 cash.

“I was the 10th ski shop in Southern California,” Olberz says. “In that first year, before the snow fell, I expanded the merchandise [beyond ski and tennis] to include scuba diving, which was a brand-new sport then, and gave classes inside the store.”

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At the time, Olberz and his wife, Irene, had two rollaway beds in the ski rental shop in the back where they would sleep at night. They owned only one chair, so they often ate their meals in the car. Yet by the end of his first year in business, Olberz had sold $65,000 worth of merchandise and had expanded the stock to include equipment for mountaineering, at that time a mostly European sport.

Now, more than 40 years later, Olberz thinks the sports retail business has overexpanded--that the consolidation of many major chains is a natural evolution. “It will eventually go back to a normal size,” he says. He scoffs at the notion of selling Sport Chalet, saying that he “wouldn’t do that” to his employees.

“I have a ton of people who have been with this company for 20 years or more. They are very loyal,” he said.

In recognition of their service, Olberz gave $1.5 million in stock to 130 longtime employees a year ago. “If I had $1.5 million more or less, it wouldn’t change my lifestyle. The decision only impacted the SOB’s inheritance. That’s son-of-the-boss,” laughs Olberz.

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At a robust 75, Olberz is not a typical retail magnate. Even though he owns more than two city blocks in La Canada Flintridge, his office is in a small, austere storefront a few steps away from the site of the original store. The walls are decorated with architectural drawings of the Sport Chalet superstore/mall/corporate headquarters Olberz has sought to build there--unsuccessfully--since 1982. He has yet to get approval from the city.

“I feel unfairly treated here,” Olberz says of his quest to build, which has been repeatedly waylaid by La Canada city officials. Over the last 18 years, Olberz contends that the city’s refusal to let him build has cost him more than $5 million in expenditures and lost revenue. After completion of an 800-page environmental impact report, the project was voted down in 1999 by a newly elected La Canada Flintridge City Council.

“But I’m very patient. It took me 10 years to get my U.S. visa, I can wait another 10 years to build this. I just hope I don’t die first.”

As for the company’s future, analyst Bogucki says the chain’s marketing efforts have distinguished Sport Chalet as a place that spells quality.

“They’ve done a good job differentiating themselves from the Sportmarts and Sports Authorities,” she says. “Sport Chalet is known for their service and the fact that they go deeper into such sports as skiing and scuba diving.”

She believes that its Internet presence will help the company expand that profile beyond Southern California. “That opens the potential for a bigger market,” she says.

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From Olberz’s perspective, growing the chain hasn’t been his main goal.

“I’ve never wanted to be the biggest sports retailer,” he says. “I just wanted to be the best. What’s the difference if we have 22 stores or 44 stores? Right now, the sports retail industry is saturated. Like everything that reaches this point, it will consolidate and go back to a normal size. And hopefully we will stay on top.”